How is dividend income taxed in India in 2026?

Quick Answer: Dividends are added to a resident's total income and taxed at default-regime slab rates: nil on income up to ₹4 lakh, rising to 30% above ₹24 lakh. A company deducts 10% TDS once an individual's dividends from it cross ₹10,000 in a tax year. Non-residents are taxed at 20% under section 207, subject to any tax treaty.

Since 1 April 2026, dividend tax in India runs under the Income-tax Act, 2025, which replaced the 1961 Act. Most rates a shareholder sees are familiar. The section numbers have moved, and one deduction has gone.

Below are the mechanics for resident investors, NRIs and holders of US shares, with old section numbers in brackets where the Income Tax Department still publishes them. Our breakdown of investment taxes in India covers how dividends sit beside STT, capital gains and stamp duty.

Which head of income covers dividends in India in 2026?

Dividends are taxed as "Income from other sources" under section 92(2)(a) of the Income-tax Act, 2025, which applies from 1 April 2026. That clause charges "any dividend". A resident's payout is therefore added to total income, not taxed at a separate dividend rate.

Residents and non-residents fall under different sections for both the tax rate and TDS, and the table below maps each rule to its section in the new Act, with the 1961 Act position alongside.

Dividend tax provisions, old Act versus new Act (Income Tax Department, as of 18 Sep 2026):

Is dividend income taxed at your slab rate?

Dividend income is taxed at slab rates for a resident individual, because dividends join total income: nil on income up to ₹4 lakh, rising to 30% above ₹24 lakh. Those are the default rates in section 202(1) for FY 2026-27. A taxpayer can still opt out under section 202(4).

Default-regime slabs under section 202(1), Income-tax Act, 2025 (as of 18 Sep 2026):

Total income sets the slab, not the dividend alone. Under section 156(2), a resident individual taxed under section 202(1) whose total income does not exceed ₹12 lakh gets a rebate of the full tax or ₹60,000, whichever is less. Above ₹12 lakh, a marginal relief limits the tax to the amount by which income exceeds ₹12 lakh.

As an illustration (our arithmetic on the section 202 table), ₹50,000 of dividends received by someone whose other income already sits in the 20% slab adds ₹10,000 of tax before surcharge and cess. Taxable income is the declared per-share amount multiplied by shares held. For NSE's FY2026 dividend, NSE's draft offer document records ₹35 per share, recommended by the Governing Board on 5 May 2026.

When is TDS deducted on dividends?

A domestic company deducts 10% TDS before it pays or distributes a dividend, under section 393(1), Table serial number 7 (formerly section 194). For an individual paid other than in cash, no tax is deducted if the company's dividends to that person in the tax year do not exceed ₹10,000, under section 393(4). Before the Finance Act, 2025 raised it, this limit was ₹5,000, per the Income Tax Department's highlights of that Act.

Every dividend "distributed or paid or likely to be distributed or paid" during the tax year counts toward the ₹10,000 test, so an interim and a final dividend from one company are added together. An interim payout such as Bajaj Holdings' FY27 interim dividend therefore counts toward the same annual limit as any final dividend the company pays that year.

TDS is an advance payment, not the final tax. According to the Income Tax Department's TDS guidance, the deductee claims credit for the deducted amount in the income tax return. Where slab tax on the dividend is higher than 10%, the balance is paid with the return. If it is lower, the excess comes back as a refund.

Some holders are outside this deduction altogether. Section 393(4) lists dividends paid to LIC, GIC and other insurers on shares they own, and dividends paid by a special purpose vehicle to a business trust.

How are NRIs taxed on Indian dividends?

Non-residents are taxed at 20% on dividends from an Indian company under section 207, or 10% if paid by a unit in an International Financial Services Centre. No expense is deducted against them. The Income Tax Department's rate chart for AY 2026-27 listed TDS of 20% on such dividends under the old section 195.

Under the new Act, the payer deducts tax at the rates in force, under section 393(2), Table serial number 17. The ₹10,000 no-TDS limit does not carry over, because section 393(4) ties it to the resident table in section 393(1), not to payments made under section 393(2).

Tax treaties can change the outcome. Where India has a double taxation agreement with a country, section 159(4) says the Act applies only to the extent it is more beneficial to the taxpayer. Treaty rates differ by country, and the relevant agreement's dividend article sets the ceiling for each shareholder.

To claim a treaty rate, section 159(8) requires the non-resident to obtain a tax residency certificate from the government of their home country, plus any other prescribed documents. Without it, no treaty relief can be claimed.

How are dividends from US stocks taxed in India?

A resident's US dividend can be taxed up to 25% in the US under the India-US tax treaty, then taxed again in India at slab rates. The India-US double taxation agreement caps the US tax at 25% in Article 10, and at 15% only for a company owning at least 10% of the payer's voting stock.

In India, section 92(2)(a) charges "any dividend" under Income from other sources, so the US payout is added to total income and taxed at the resident's slab. Article 25(2)(a) of the treaty then requires India to allow the US tax paid as a deduction from Indian tax, capped at the Indian tax attributable to the same income.

This credit is not automatic. Under Rule 128 of the Income-tax Rules, 1962, a resident claims it by filing Form 67 on the e-filing portal on or before the due date of the income tax return. For income earned from 1 April 2026, the Income-tax Rules, 2026 apply, so the successor form should be checked before filing.

What changed for tax on dividend income in 2026?

From 1 April 2026, no deduction is allowed against dividend income, under section 93(2) of the Income-tax Act, 2025 as amended by the Finance Act, 2026. The same bar covers income from specified mutual fund units. The footnotes in the Income-tax Act, 2025 as amended by the Finance Act, 2026 record the substitution, effective 1 April 2026.

That substitution removed an interest allowance. Under the 1961 Act, the Income Tax Department's dividend guidance allowed a resident to deduct interest paid to earn dividends, capped at 20% of total dividend income. The first version of section 93(2) in the new Act carried the same 20% cap until the Finance Act, 2026 replaced it.

For a shareholder who used borrowed money to acquire dividend-paying shares, the whole dividend is now taxable, with no interest offset. The Finance Act, 2026 also amended section 93(1)(a), so a banker's commission for realising dividends is no longer listed as a deduction.

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Disclaimer: This article is for educational and informational purposes only. Multibagg AI is not a SEBI-registered investment adviser or research analyst, and it does not provide investment, financial, legal or tax advice. Nothing here is a recommendation to buy, sell, hold or invest in any security. Market data is shown as of the dates stated and may have changed since. Please consult a SEBI-registered adviser before making any investment decision.